The Tendency to Give More Weight to Possible Losses Than

question 37

Multiple Choice

The tendency to give more weight to possible losses than to possible gains when making decisions that require tradeoffs is known as ____.

• A)the certainty effect
• B)temporal discounting
• C)risk aversion
• D)the status quo bias

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Definitions:

Business Risk

The possibility of loss resulting from the day-to-day operations of a business, which can be influenced by numerous factors including market conditions, production costs, and management decisions.

Risk Aversion

The inclination of investors to avoid risk, preferring safer investments over those with higher potential for gains but also greater risk.

Total Risk

The complete scope of uncertainty or variability in returns on an investment, including both systematic and unsystematic risk factors.

Security Market Line

A representation in finance that shows the relationship between risk (as measured by beta) and expected return of investments, used in the capital asset pricing model.